SILICON VALLEY, CA - These days, even the pessimists in commercial real estate are optimistic about the value of going green. Industry debate has shifted from "Do green buildings make financial sense?" to "How much financial sense do green buildings make?" Alas, on that question, there is far less consensus. Even ardent advocates admit that it's hard to prove doing good can also mean doing well. But lots of people are working on it.
"For us, it has been very difficult," says Mark Robinson, a green-management consultant whose top client is Hines Interests LP. A Houston commercial developer whose portfolio spans the globe, Hines owns 1.6 million square feet of Silicon Valley commercial real estate, as well as other projects on the peninsula and in San Francisco.
Hines is considered a leader in green construction. The company has been a dogged practitioner of energy-saving construction - a pillar of the green movement. In 2006, founder Gerald Hines and his son Jeffrey said the company would henceforth build and own only green. That year, Hines also sold two green high-rises that it developed in Atlanta and Chicago for record-breaking prices, $380 a square foot in Atlanta and $420 a square foot in Chicago.
But "teasing out" how much eco-friendly building qualities contribute to prices remains elusive, Robinson and others say. For one thing, only 1,551 commercial buildings nationwide have been certified green by the U.S. Green Building Council, the nation's de facto standards setting body.
Yet interest in gaining green certification for commercial buildings is mushrooming. The number of projects in the pipeline to gain some level of green certification exceeded 12,200 at the end of May, according to the Green Building Council.
Finding quantifiable answers to what have been generally accepted but still qualitative claims is becoming a stiffer need for more people. Knowing for sure, not just suspecting, that operating costs in green buildings are lower so rents can be higher, is gaining increasing importance. And proving that workers in green buildings are more productive than those in "brown" or traditional structures has become what one consultant calls "The Holy Grail."
"Green building is fundamentally altering real estate market dynamics," says real estate asset manager Rreef in a report published last year by researchers in its San Francisco office. "The upshot will be a redefinition of what constitutes Class A properties."
Still, the report concedes, data does not support claims of green building's financial superiority. Appraisers and lenders have yet to accept it completely, much less define how much value green attributes do or do not create.
Research published this spring using data from the commercial real estate industry's CoStar Inc. took a first major stab at calculating a dollar value on the green premium. The study was completed by CoStar Chief Executive Andrew Florance, CoStar chief researcher Jay Spivey and Norm Miller of the University of San Diego.
The trio found that green-certified buildings pulled in $11 a square foot a year more in rents and could add $171 a square foot to a property sale. The study did not distinguish between property types. But the study sparked rebuttal from the Green Building Finance Consortium in San Rafael. The consortium is a new research and reporting agency that is being financed by 19 corporate and institutional members.
Miller concedes that the dollar figures in his CoStar study "may be a little bit skewed." But, he argues, "The degree to which the buildings have lower operating costs, better rents, faster occupancy is not important. It's the idea that the cost is less than the value impact."
Scott Muldavin of the Green Building
Source: San Jose Business